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Tax Lien Investing

7 Steps To Buying Tax Liens Online

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The Simple Steps To Investing in Tax Lien Certificates Online

It’s a very simple process to purchase tax liens. More and more states are moving to online auctions for tax defaulted property. This means anyone in the world with an internet connection and the funds to invest can participate in an online tax defaulted property auction.

How To Buy Tax Liens Online

The following is a basic step-by-step process to purchase tax liens online:

1.

Log onto the online tax lien auction website and provide the basic information to register as an online tax lien bidder. Typically, the following information will be required:

  • Name of the person or other legal entity who will own the investment
  • Tax identification number of the investor 
  • Bank account information for the transfer of funds electronically 
  • The deposit amount the investor wishes to transfer is specified and transferred from the investors bank account (the deposit is typically a percentage of the total maximum value of tax liens the investor wishes to buy)
2.

The investor researches each tax lien they are considering buying to ensure that the real estate backing the tax lien has sufficiently greater value than the tax lien. Most or all of the research you want to do can be found online. 

3.

You will have to place an online bid to purchase a tax lien. This process typically involves selecting a tax lien and defining a percentage interest rate you are willing to accept as an annual interest rate on that tax lien. You can bid to buy more tax liens than your deposit will cover and the online system will stop buying tax liens in your name once your limit is reached. 

4.

After the online tax lien auction process is complete you will get a summary of what tax liens you bought and will either be required to electronically pay the balance of what is owed for your tax lien purchases, or get a refund of the unused portion of your deposit

5.

You will not need to wait until the delinquent taxpayer pays the property taxes. With each paid off tax lien, you will receive all your original investment plus interest electronically transferred into your bank account or mailed to you.

6.

If the the tax liens you purchased is not paid off by the delinquent taxpayer, you can get ownership of the property for the cost of the back taxes and any applicable fees. (You may want to hire a tax lien attorney to assist in getting ownership of the property.) 

7.

Tax lien certificates that are not sold during the auction are often available to investors to buy online shortly after the auction using a similar process as used during the auction, but in this case there is no bidding. The first buyer to make an offer to buy a tax lien online gets the lien at the maximum interest rate allowed by law. 

Each local government agency offering the opportunity to buy tax liens online will provide the rules of the tax lien auction in that jurisdiction. These are the basic steps for purchasing and profiting from tax lien certificates online. 

While the provide information is deemed to be accurate, it is not meant to be a comprehensive explanation of the laws governing tax lien sales and redemptions. It is strongly recommended that the bidder review State Laws & Statutes prior to participating in a tax lien sale auction.


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Investing Real Estate Investing Tax Lien Investing

Investing in Tax Liens: The Rate of Return

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Tax Lien Investing, An Underutilized Investment Tool

The goal of an investor is to seek new opportunities while evaluating risks vs. rewards. Many stock market investors are happy with a safe return of 10-15%. Investing in tax liens and tax certificates is a less familiar strategy. Although it’s less popular and not fully understood, tax liens can preform just as well or better than stock investments. Another advantage of tax lien investing is that you have a more pre-determined return without having to second guess the market. 

Investing in Real Estate Tax Liens

In many jurisdictions, real estate tax lien investors see returns between 10-25%. As with any other investment, the key to tax lien investing is to fully understand the strategy and know as much about the property as possible.

What is a Tax Lien? 

When a property fails to pay the real estate taxes, the city or county in which the property is located has the authority to place a lien on the property. A lien is a legal claim against the property for the amount of unpaid taxes.

When a lien is issued, a tax lien certificate is created by the municipality that reflects the amount owed on the property, plus any additional interest or penalties due. These certificates are then auctioned off to the highest bidding tax lien.

Tax liens are assigned by county. However, the guidelines regarding tax liens vary with each state. There can be some variance regarding the redemption period and the bidding process.

There are two ways to profit from tax lien investing. First, the most common way is profiting from interest payments and the 2nd is taking ownership of the property.

Rates of Return

Here’s an example of Rates of return.

StateSale TypeInterest RateRedemption
DelawareDeed (hybrid)15% penalty60 days
D.C.Lien18% per annum6 months*
FloridaLien18% per annum, 5% minimum2 years
GeorgiaDeed (hybrid)20% penalty1 year**
LousianaDeed (hybrid)12% per annum + 5% penalty3 years
MarylandLien6% to 24% (varies by county)After 6 months*
PennsylvaniaDeed (hybrid)10% per annum*Possibly 1 year*
South CarolinaLien8% or 12% per annum1 year

* varies
** not self-executing

Lien vs. Deed vs. Hybrid States

Each state has a process for enforcing payment of property taxes. About half of the states are tax “lien” states, while the other half are considered tax “deed” states.

In a deed state, the county is not selling a lien on the property for failing to pay property taxes. Instead, the the county is actually auctioning the property itself to pay the taxes.

A “hybrid” state is technically a deed state. However, it operates like and has much in common with a lien state. It has aspects of both systems. 

All states fall into one of these categories:

  • Lien states
  • Deed states 
  • Hybrid states

State by state:

LienDeedHybrid
AlabamaAlaskaConnecticut
ArizonaArkansasDelaware
ColoradoCaliforniaGeorgia
District of ColumbiaIdahoHawaii
FloridaKansasLouisiana
IllinoisMaineMassachusetts
IndianaMichiganPennsylvania***
IowaMinnesotaRhode Island
KentuckyNevadaTennessee
MarylandNew HampshireTexas
MississippiNew Mexico
MissouriNew York**
MontanaNorth Carolina
NebraskaOhio*
New JerseyOregon
North DakotaPennsylvania***
Ohio*Utah
OklahomaVirginia
South CarolinaWashington
South DakotaWisconsin
Vermont
West Virginia
Wyoming

* Ohio is historically a deed state however, counties with populations over 200,000 are also allowed to conduct tax lien sales.
** New York City is also allowed to conduct tax lien sales.
*** Pennsylvania counties may operate under the hybrid system where the property is improved and has been legally occupied 90 days prior to the sale.

Lien States

  • The investor only has a lien on the property and does not have any other rights in, or title to, the property.
  • The investor receive a statutory interest rate until the property tax is received.
  • The property owner has a statutory redemption period within which he or she must pay the tax bill.

Deed States

  • The investor actually requires title to the property.
  • No interest rate or redemption period is involved since the investor receive the property itself.

Hybrid States

  • The investor actually acquires title to the property, subject go the prior owner’s right to redeem and get the property back.
  • Should the prior owner redeem (ie; pay the tax bill plus interest, penalties, and costs), the investor will receive an interest or penalty payment on his or her investment. 
  • The prior owner has a specified redemption period (six months to 3 years) to redeem the property and reacquire title.

Who Should Invest In Tax Liens?

Property tax liens can be a viable investment option for investors familiar with the real estate market. Investors that fully research properties prior to buying liens can generate substantial profits. 


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